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Good Life Q&A

An IRA rollover may seem pretty complex at a glance, but the process itself is actually simple and straightforward. 

This term refers to taking funds out of a designated tax-free retirement account (like a 401K or a 403B) and moving the funds into a traditional or Roth IRA. When an IRA rollover is scheduled, the financial firm hired to handle the transfer will contact the company where the funds are coming from, and request a funds release through check or direct deposit. While there is some paperwork and a few other tasks involved, all of this will be handled by receiving institution.

If the recipient requests a check, a 20% withholding penalty will be assessed on the account before the transfer takes place. There are a few exceptions to get around this fee but in most cases, it cannot be avoided. The only time that it benefits consumers to use this method is when they plan on moving the investment capital into a non-IRA account, or to pay off various life expenses when no other alternative is available.

Most IRA rollovers are complete by an electronic transfer. As long as the funds pass directly from a 401K (or 403B) into a Traditional or Roth IRA, there are no penalties involved and it remains tax-free income until maturity.

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